Can you imagine being prosecuted by a federal agency at the young age of 15? If you want to know what that might be like, try speaking to Jonathan Lebed. Starting when he was thirteen, Lebed began trading penny stocks from his bedroom computer in the suburbs of New Jersey. He was good at it too, earning over a million dollars in just two years. In 2001 things came crashing down and Lebed became the first ever minor prosecuted by the Securities and Exchange Commission (SEC). He was accused of stock manipulation, and if found guilty could be forced to give back all the money he had earned in two years of penny stock trading.
The problem for Mr. Lebed was that the method he used to make money on penny stocks – artificially increasing the demand for stocks he owned by posting online about them – is a form of illegal stock manipulation. The source of trouble for Lebed comes from the level of influence he attempted to have on the market. He did not just recommend his stock holdings to other traders online, he created multiple accounts and posted thousands of messages over a two-year period. His strategy was successful, as he single-handedly influenced the price of several of his holdings over that span – earning himself millions of dollars in the process.
Lebed was able to build so much hype around his stock holdings that on some occasions he increased the daily trade volume of a particular stock from around 60,000 a day, to more than one million. Lebed was able to earn as much as $74,000 in a single day using these methods, but his minimum gain for one five-month period was $12,000 in one day. Ultimately, Lebed and the SEC settled out-of-court and Lebed was forced to pay back a portion of what he had gained through his misdeeds. It is worth noting that Lebed was able to walk away without admitting any wrongdoing, and while maintaining the vast majority of his illegal income.
In fact, Lebed had earned as much as $800,000 during just six months of trading and the SEC had only identified eleven incidents of Lebed illegally promoting his stocks – in reality he had done so an untold number of times. Assuming he only earned the eight hundred grand the SEC went after him for, Lebed was able to keep as much as half a million dollars after paying back $285,000 to the SEC. Overall, Jonathan Lebed made out like a bandit from the entire ordeal and lost very little in the process.
It is worth taking some time to consider whether what Lebed did should really be against the law, or at least if he should have been punished for taking advantage of the fledgling internet’s ability to generate artificial hype as a mere child. Lebed started trading in the late 90’s when the internet was basically the wild west. There are laws against the behavior Lebed engaged in for a reason – if every trader behaved this way there would be absolute chaos in the market – but to prosecute a minor for these acts seems excessive.
One person certainly did not think Jonathan had done anything wrong – his father, Greg Lebed. “I’m proud of my son!” He shouted while confronting the media. Later on in a television interview about his son he said that Jonathan was not selling drugs or stealing from people, so it could have been worse. His mother did not appear upset with her son either, saying that she was upset the SEC never contacted her son or either parent before sending a subpoena to their home.
These days Lebed lays low and has not made the news in several years. It is impossible to say without asking him whether his youthful transgressions – and the hundreds of thousands they earned him – were worth the trouble. Perhaps attempting to gain something from the publicity his misdeeds generated, he ran for Township Council of Cedar Grove in 2003 but was unsuccessful. As of 2010, he still resides in his home state of New Jersey, where he managed Lebed Biz LLC, a penny stock website.